The long-standing obsession with property as a means of building wealth is outdated as buyers will not match the gains of past generations, says Rathbones.
Analysis by the wealth manager found that the boom years in property investment which lasted from the 1980s to the mid-2010s in the UK are now over.
Its data showed that since 2016, residential property has barely kept up with inflation at 3.7% per annum over the past nine years. In London, where buyers previously enjoyed the biggest gains, housing fared even worse, unperforming inflation by 2.2% a year, with prices rising just 1.3% a year.
Rathbones said the findings were in stark contrast to the experience of previous generations. Between 1980 and 2016, UK house prices rose at a rate of 6.7% annually, rising to 8.5% in London.
However, since 2016, stock markets have risen significantly faster than property prices. The research found that £100 invested in UK property in 2016 would have been worth £134 in 2024, but if the same amount had been invested in an indicative portfolio of 25% UK and 75% international equities, that would rise to £174; £100 invested in London property would be worth just £111.
Oliver Jones, head of asset allocation at Rathbones, said: “The idea that you can’t go wrong with bricks and mortar just isn’t true. The data shows that diversified global investment has put to shame returns from housing over the last decade and we believe this trend will continue.
“The earlier boom in house prices was fuelled by factors which no longer hold. The huge decline in interest rates from their generational high in the early 1980s won’t be repeated. Homebuilding is rising after decades of very low rates. And government policy has become progressively less favourable to investors in residential property since the mid-2010s. The idea that money is safest in houses simply is not true any more.”
Looking back over more than a century, Rathbones found the average house price hovered around four times average annual earnings between 1910 and the late 1990s. However, after 2000, this more than doubled with house prices rising to as much as eight times average earnings.
Further, after decades of low interest rates, global instability has created volatility in financial markets and fuelled inflation, pushing up mortgage interest rates. This has further impacted affordability for most first-time buyers and reduced the appeal of buy-to-lets and second homes used for holiday lettings bought using mortgages, acting as a drag on house prices.
Ade Babatunde, associate financial planning director at Rathbones, commented: “We’re being asked by many people who own second properties and buy-to-lets whether the time has come to sell up and invest their money instead. This research should be a wakeup call to anyone relying on property to support their financial ambitions, especially when thinking about retirement or succession planning. The old idea that property will always deliver is for the birds and we strongly recommend taking advice.”
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